Image source: Pixabay

In typical bravado fashion, Trump  declared that “We don’t need their oil and gas. We don’t need anything they have“ in reference to Canadian exports. If only that it were true. 

Starting in the early 1990s, the US has increasing relied upon Canadian oil shipped principally from Alberta into the US heartland. A system of extensive pipelines and major refineries designed to accept the heavier oil from Canada now supports shipments of 4 million barrels per day. Canada accounts for nearly 2/3rds of all US oil imports. Moreover, the burgeoning trade between Alberta and the Midwest has transformed the Gulf Coast refineries into a major source of US global exports. 

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Trump’s threats to place tariffs on all Canadian imports creates a dual set of problems for the US Administration. 

 Firstly, concerns the application of tariffs on incoming Canadian oil. The oil sold to the American refineries already is offerred at a discount, as much as 15 % to the world price, a reflection of the higher costs of cracking a barrel of tar-sands oil. The last thing a refinery, designed to take heavier oil, needs is higher costs from an arbitrary government decision. 

Secondly, although Trump may exempt Canadian oil from American tariffs, the Canadian government is well within its constitutional rights to levy an export tax on oil leaving Alberta for the US Midwest. Alternatively, Canada could limit the amount of oil available to the US refineries under the same constitutional authority. These forms of retaliation would have the same ultimate impact of raising US oil import prices. Right now, Trump has not decreed any tariffs aimed at Canada, and Ottawa, wisely, has not indicated any retaliatory measures. But the game may be afoot.

On broader scale, even the fossil-fuel lobbyists are warning the Administration against the consequences of restrictions on Canadian oil exports, either in price of volume. Even striving for total self-sufficiency in energy must not come at the expense of higher prices at the pump. More importantly, the oil industry realizes that peak oil has arrived and that investors are no longer forthcoming with funding to support drilling in the continental US to replace Canadian oil. In all seriousness an American investment fund manager,offered thisquip that“‘Drill, baby, drillshould be a swear word” . While Trump may tout the benefits of more fossil-fuel development in the US, the US industry is more realistic about the worldwide shift towards non-fossil fuel alternatives. The industry is content with the current arrangement of receivingCanadian oil at favourable prices. Trump needs to pay heed.

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